Podcast: State Taxes for Oil and Gas Companies

In this episode of Weaver: Beyond the Numbers, Shane Stewart, Mayur Naik and Tanner Owens discuss how state taxes, including sales, severance and property taxes, impact the oil and gas industry. With millions of dollars at stake, understanding how these taxes apply is crucial for energy companies looking to optimize operations and reduce costs.

Key Points:

• Sales, severance and property taxes each play a significant role in the oil and gas industry, affecting operators and purchasers.
• Identifying exemptions and deductions can provide substantial tax savings for companies in the energy sector.
• Direct pay permits offer oil and gas operators a way to gain more control over tax payments and potentially reduce their tax liabilities.

Naik and Owens explain the intricacies of the oil and gas industry’s sales, severance and property taxes. Sales tax applies to transactions involving goods and services, and with rates as high as 10%, operators can pay millions in taxes on capital expenditures. Owens highlights that severance taxes applied to the extraction of natural resources serve as a primary revenue driver for states like Texas. Property taxes are also significant, and understanding how to manage these taxes across multiple accounts is crucial for operators.

“There are significant opportunities for savings through exemptions and deductions, especially when considering the various phases of an oil and gas project, from construction to production,” Naik said. Some exemptions apply to construction activities such as drilling a well, stimulating the well, applying chemicals and hydraulic fracturing since these actions often aren’t subject to sales tax. Operators can leverage tax deductions and benefits by understanding their state’s tax rules, creating opportunities for economic viability and efficient operation of wells.

For prospective savings, a direct pay permit from the state can be beneficial to oil and gas companies. This permit allows firms to control what they pay tax on directly to the state, reducing unnecessary overflows and providing real-time tax credits. Filing refund claims with the state or a vendor to recover overpaid sales tax is also a common practice. The statute of limitations varies per state, and it is beneficial for organizations to stay informed about their respective state’s rules.

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